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Marge Simpson Inc. has following business opportunities with following cash flow information. Assume Marge’s opportunity cost...

Marge Simpson Inc. has following business opportunities with following cash flow information. Assume Marge’s opportunity cost of capital is 12%.

Year

Project A

Project B

0

−$20,000

−$20,000

1

15,000

2,000

2

15,000

2,500

3

13,000

3,000

4

3,000

50,000
  1. Calculate NPV for both projects.
  2. Calculate IRR for both projects (Hint: the equation of calculating IRR).
  3. Calculate profitability index for both projects.
  4. Calculate payback period for both projects.
  5. Which business opportunity is better? Use IRRA=54.7%, IRRB=33.3%, cross over point=14.1%. (Hint: provide your choice with different discount rate)
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